Has Apple Dealt Sonos A Fatal Blow?

Sonos, who are still urging consumers to buy direct cutting out local retailers, are still facing an uphill battle to compete in the networked audio market with their shares losing a third of their value since listing back in October 2018, at the same time Apple has taken a major swing at Sonos by cutting a deal with Amazon who are seen as having a superior sound system.

On 29 September 2018, Sonos a US$1.2b Company posted a loss of -US$15.6m for its most recent financial year.

The most pressing concern for investors is how the Company intends to deliver profitability in the future or whether they will ever breakeven?

By selling direct Sonos Australia is saving up to 30% in margin and marketing rebates that they have to pay local retailers, this is a move that is upsetting major retailers in Australia.

Next month Samsung subsidiary Harman will release a new competitor to the Sonos offering with the local launch of a new Harman 24bit range of networked speakers that deliver Google Assistant via a range of speakers including the Citation 500 speaker.

According to Harman Australia executives the new range that includes floor standing and tabletop speakers will “Be priced the same as the Sonos range” a clear indication that Sonos who has never made a profit in more than ten years is set to be targeted by some big sound brands in 2019.

Among the problems that Sonos face is the fact that Sonos shares have lost nearly a third of their value since going public at $15 in August. According to Motley Fool, Sonos took a hit after posting a 7% decline in revenue for its fiscal third quarter.

The market initially liked its fiscal fourth-quarter numbers, but the 27% top-line surge was eventually offset by guidance calling for a mere 3% to 6% advance in revenue for the current quarter.

Another issue for Sonos is sell in Vs sell out.

As new competing products are launched with superior technical specs retailers are moving to range the new 24bit networked audio products alongside the old Sonos technology with some tipping that Sonos will have no alternative but to move away from their proprietary technology to a new platform that allows them to compete head on with brands such as Amazon.

In the battle for smart-speaker supremacy, Amazon.com is now clearly chipping away at the advantages held by the former premium player Sonos who despite having the market to themselves have not been able to deliver a profit.

The Echo Sub, Echo Link, and Echo Link Amp deliver a vastly improved quality and one that is a serious threat to Sonos.

Amazon recently released new Amazon Echo Pro speakers and a $199 subwoofer. The new speakers cost $229 which when multiplied by 2 with a subwoofer thrown in comes to $657.

In comparison the Sonos subwoofer in Australia is $849 and the Sonos Play One speaker is $229 which means a pair of stereo speakers and Sonos sub will set you back $1,307 for a sound system that’s not as good as the Amazon offering.

After launching their new Echo devices which are a major improvement on the previous Echo’s audio quality. Amazon then cut a deal that became effective from Dec. 17 that will see Apple Music’s 50 million-song library, its stations, and its live-streams, available via Echo devices.

This is a major blow to Sonos who for more than a decade have favoured Apple products over Android.

Previously, Sonos had been the only third-party smart speaker through which subscribers could connect with Apple Music.

So, while speakers from other companies work with a variety of music streaming services, including Amazon Music, Spotify, Pandora, iHeartRadio, Sirius XM, and TuneIn, the Sonos device was the only networked product to deliver access to Apple Music’s extensive library.

Sonos claim that that won’t flood the market with cheap devices the way Amazon and Alphabet’s Google have for the simple reason that they don’t own music content libraries similar to competitors, Apple, Amazon and Google.

What they are desperately trying to do to be competitive is differentiate itself from Apple’s more expensive HomePod, but the big problem is that Apple’s Music deal with Amazon may be the biggest challenge it faces.

ChannelNews understands that Amazon will shortly bring out a device that supports support AirPlay2 as well as an Echo soundbar.

Analysts claim that Amazon has been methodically eliminating the reasons why consumers might be willing to pay more for a Sonos device, and there’s no reason to expect it will stop now that it has brought Apple Music into its ecosystem.

David Richards has been writing about technology for more than 30 years. A former Fleet Street, Journalist He wrote the Award Winning Series on the Federated Ships Painters + Dockers Union for the Bulletin that led to a Royal Commission. He is also a Logie Winner. for Outstanding Contribution To TV Journalism with a story called The Werribee Affair. In 1997, he built the largest Australian technology media Company and prior to that the third largest PR Company that became the foundation Company for Ogilvy PR. Today he writes about technology and the impact on both business and consumers.